Author : John E. Charalambakis
Date : September 8, 2013
One of my favorite songwriters (Rich Mullins) – who died prematurely sixteen years ago – wrote the song “On the road to Damascus”. Let’s recall some of those lyrics:
On the road to Damascus
I was hung in the ropes of success
When you stripped away the mask of life
They had placed upon the face of death
As we are getting ready to head to Damascus, let’s first highlight some facts that can make us skeptical regarding the ultimate goals and potential consequences:
Five hundred years ago Machiavelli wrote his famous piece The Prince. With that Machiavelli put forward the cornerstones of the modern secular state by removing religious fatalism and establishing the principles of a cynical government that seeks to govern through the conundrum between “to be feared or to be loved”. The era known as Renaissance had started a few decades earlier, and we all know that it was followed by the era of Reformation, scientific discoveries, and eventually the era of Enlightenment. A state that does not allow the procurement of wealth creation and the building of a community becomes a tyrannical state that rules its people with fear and removes from them the possibility to achieve their potential. On the other hand, a state that is moved by its affair with a particular clientele whose love is “needed”, is a state that is headed for bankruptcy. In either case the state commits fraud (the eighth circle in Dante’s Inferno) which leads it to self-denial and a loss of its identity, which in turn will lead it to treachery (the final circle in Dante’s Inferno).
Coming now to the markets, we could say that the markets keep romanticizing hopes while downplaying risks and uncertainties. In an environment that is getting hotter by the day given the geopolitical risks, the markets seem to think very lightly of potential consequences. While yields on the ten-year Treasury keep rising and the debt-ceiling issue is approaching, romanticizing blinds the markets of the impending risks and the fatigue that comes from the undercurrent stream of risks.
The impending tapering of Fed’s purchases of mortgage backed securities (MBS) may reverse the upward trend of bank stocks and of the S&P 500 (as well as the corresponding ratio as shown in the graph below) at least temporarily, which will infuse some healthy dose of reality into the markets.
The truth of the matter is that when we allow to be ruled by fear or by the love affair between the government and special interest groups, then we can never hope for the unfolding of an era that will lead to modern Renaissance and Reformation which in turn will pave the way for the enlightenment of our minds.